Casting Spells to Fix the Broken Car

December 9, 2004by atanu

Folk wisdom captures very succinctly the idea that life is about tradeoffs in the saying that one cannot eat one’s cake and have it as well. If you eat the cake, it is gone and you no longer have it. Economists call it opportunity cost . The opportunity cost of eating the cake is not having it; conversely, the opportunity cost of having the cake is that of not eating it.

Remarkable results follow from exploring the idea of opportunity costs. The whole theory of comparative advantage — the fundamental reason why trade is a win-win game — pivots around the idea. One could do worse than to sit and consider opportunity costs whenever one contemplates doing something.
In fact, I would go so far as to claim that economics at its most fundamental is the careful systematic study of opportunity costs. Opportunity costs implies choices and tradeoffs, and is itself the consequence of a fundamental physical characteristic of the universe that we live in. That fundamental fact is that this universe has limits. Each one of us has a limited amount of time and other derivative resources at our disposal.

Economics is about making choices and economic policy is about policy choices. How an economy performs depends on the economic policy choices made by whoever is in charge of making choices. All this should be glaringly obvious and you may have started wondering where all this is leading to. I was coming to that.

The last time I wrote about the craziness of the ICT for development brigade. ICT tools are of course relevant for development in certain cases. But mindlessly applying ICT in each and every place is worse than doing nothing. If you spend scarce resources buying PCs for rural areas, you neglect other more relevant areas where those resources would have helped.

Adult education, for instance, is a crying need in rural India. You can, of course, use a variety of means of achieve that, ranging from blackboard and chalk, to radio and TV, to PCs with literacy software. Examining the economics of the situation could well reveal that blackboard and chalk is the most appropriate means. For a total capital expenditure of Rs 500 and an operating expenditure of Rs 1000 per month, you could make 20 adults literate in 6 months. Per capita cost would then be about Rs 325 (about $7.) Let’s do the numbers if you were to use a PC. Cost of hardware and software Rs. 20,000; power supply for the PC: Rs. 20,000; trained manpower and maintenance per month: Rs 3,000. Total cost: Rs 58,000. Per capita cost: Rs 2,900 (about $65.)

Of course, one could always use the PC for a number of uses, not just adult education. Instead of just educating 20 people, one could use it more intensively by say using it 12 hours a day and thus train 5 batches for a total of 100 people. Still, the PC method would cost Rs 70,000 and the blackboard method will cost Rs 25,000. By using the low-tech method, you save Rs 45,000. Here is an idea. Give Rs 450 as an incentive to the people: become literate for free and when you complete the course, you take home Rs 450. Total cost to the state: Rs 70,000, the same as the high-tech solution. Same expenditure but guaranteed different outcomes.

In the low-tech scheme, you give money to the rural adults. This is an incentive to them and better still, they in turn, spend the money locally which stimulates the local village economy. They buy food perhaps which helps out the farmers. Compare that to the high-tech scheme. The money goes to the manufacturers of hardware and software, which basically means Intel, Microsoft, HP and so on.

I hasten to add that rural India has a wide range of problems. Saying that not all of them are amenable to a high-tech solution also means that there are some problems that are the properly addressed by high-tech solutions. Point to point communcations of all sorts — voice, text, video — are best done using high-tech methods. Compared to carrier pigeons and even POTS (plain old telephone system), wireless WiFi and VOIP (voice over IP) will be cheaper.

Here is the point that I am laboring to make. Here is a simple prescription on how to solve problems.

First, identify the problem as precisely as you can. For instance, too many illiterate people in rural areas, for example.

Diagnose the problem. This step is most often glossed over. What is the cause of illiteracy? Is it because they do not have PCs? Or is it because they don’t have teachers? Or maybe because they don’t have time to go sit in a class because they have to earn a living by toiling in the fields? Or is it because the upper caste people prevent the lower caste people from going to class?

Apply the appropriate remedy that fits the diagnosis of the problem. If it was really a lack of PCs in that village that led to illiteracy, then by all means get those PCs Fedexed immediately. But the vast majority (about 99.99recurring percentage) of humanity has become literate without the aid of PCs. So it is unlikely that the lack of PCs is the cause of the illiteracy. It is more likely something else.

There is nothing wrong with very good headache medicine. But very good headache medicine would do fancy little for you if you have an upset stomach. Psychological counseling is great but will not help a broken car. Administrative problems cannot be solved by technological means any more than casting spells fix a balance of payment deficit.

I am delighted that so many NGOs, pundits, and governments are so gung-ho about the use of ICT for development. More power to them. But if their spending on ICT diverts scarce resources to unproductive silly ill-conceived wasteful exercises, it is a pity that the same sort of idiotcracy still exists that brought the country to the sorry state that we find it in today.

Atanu, sidetracking a bit here, but I have seen that we focus on education a lot. Yes education has its merits and brings forward a plethora of opportunities but in most cases it would just mean that the person would become a better consumer as he would have more knowledge.

It is unlikely that adult education will lead to potential developments or innovation that would raise the society as a whole. Unlikely, but not impossible.

Anyhow, the opportunity cost of educating somebody might mean that we are ignoring the root cause of why we want to educate them. If it is to make better consumers out of them – of goods, services – or better sellers – of products they make, then possibly it could be done in another way. Perhaps then, e-chaupals are not such a bad idea but personal laptops might be, as e-chaupals enable the illiterate village folk gain more knowledge reliably, which they can use for immediate benefit.

Shouldn’t we then, focus on educating the next generation, as it is obviously them who will take us further and for now, be content with the miserly services we provide the adult poor with?

Of course I am talking in a macro sense – some basic education should be imparted and must be universal – but a working knowledge would suffice in most cases. Exceptional adults can be identified and offered scholarships to pursue studies further if possible.

Also, your chalk and blackboard theory ignores the human capital that will be necessary – it just might not be possible to have a permanent teacher at that location, so ICT might be able to help there.

Overall though, I agree that most organizations try and shove down ICT solutions down every throat and that they should be a bit restrained and evaluate all possibilities and angles first.